Price Signal

December, 06 (LBO) – Sri Lanka’s treasury bill rates moved up by an average of 19 basis points at this Wednesday’s auction on the back of a similar hike last week, in what analysts view as a steady response by the Central Bank to tighten monetary policy and curb demand pressure.

However the Central Bank still had to purchase 5.8 billion rupees worth of treasury bills at the auction.

The previous week the monetary authority stayed away from extending credit to government forcing the government to retire 2.8 billion rupees worth of bills.

Total credit to government shot up to 103.6 billion in September this year, triggering severe pressure on the balance of payments and pushing consumer inflation to 19.8 percent by November, the highest the country has seen this decade.

In October the Central Bank had to sell 34.6 million dollars to defend the currency on top of sales of 125 million dollars the previous month.

In the last eight days gilt yields, have risen by an average of 38 basis points with 3 – months going up by 23 bp to 12.53, 6-months by 32 basis points to 12.61 and 12-months by 35 basis points in what analysts say is an unofficial rate hike.

Though policy rates are still low at 11.625 percent, which means the private sector and government borro